BYD’s foray into Mexico just the beginning

By Ding Gang Source:Global Times Published: 2018/10/17 19:43:40

Illustration: Liu Rui/GT

OXXO, a chain of convenience stores, can be seen everywhere on the streets of Mexico City. Mini-vans, with OXXO logos on them, shuttling on the streets and delivering goods, have become an eye-catching sight in the city. It won't take long for people to see Chinese automaker BYD Auto's electric cars join the fleet.

Owned by the FEMSA group, Mexican multinational beverage and retail company OXXO is the largest store chain in Latin America with more than 17,000 stores. It is also the biggest Coca-Cola bottler in the world.

During my recent trip to Mexico, I participated in the signing ceremony between FEMSA group and BYD Auto. FEMSA will use 10 BYD all-electric small SUVs for commuting and delivering goods. In the future, OXXO may purchase 10,000 BYD automobiles.

Insiders believe that if the goal is accomplished, BYD Auto may invest and build factories in Mexico. It would be an important breakthrough for the development of Chinese companies in the Latin American country.

China's investment in Mexico has been low in recent years, with the total short of $500 million, not even 0.1 percent of Mexico's foreign investment. This is related to the competition between the two countries' industries, especially in automobile manufacturing.

Mexico is a major manufacturing power and the biggest automobile producer in Latin America. Automotive manufacturing being an important pillar of the economy, auto companies from the US, Europe and Japan have already set up factories in Mexico. Such competition has discouraged the entry of Chinese companies in the Mexican market.

Besides, Mexico sets high standards as far as nationalization of automobile and other manufacturing industries is concerned, and imposes high tariffs on imported parts. Hence, automobiles and spares made in China can't be competitively priced when exported to Mexico.

Big manufacturing powers normally have high stakes in the market on which the dependence is immense - which means who to sell the products to. In times when consumer is king, producers are always subject to the will of consumers. Automobiles and other industrial products produced in Mexico are mainly exported to the US. This bilateral trade is a cornerstone of US-Mexico relations.

A few days before we arrived in Mexico, the country reached a trade deal with Washington and Ottawa - US-Mexico-Canada Agreement (USMCA) - an article of which limits Canada and Mexico's opportunities of negotiating potential free-trade agreements with non-market economies, which is "a code word for 'China'". The main purpose of the deal, described as "poison pill," is to squeeze the market for "Made in China" products, reconstructing trade rules in keeping with "Make America Great Again". It seems Chinese car companies will find it harder to enter Mexico.

Some analysts believe that this is a concession on economic sovereignty made by Canada and Mexico to the US. The truth is, Canada and Mexico's trade cannot survive without the US market, or reducing the two's share of exports to the US market. The influence of the US on the region certainly spans politics and culture, but the economic connection with other regional nations is the foundation of such influence.

It can be argued that the US is using its market to tie Mexico down. Market determines employment. Amid rising populism in Latin America today, jobs are closely linked to votes. Our observation of relations between China and Latin American countries should rest on this point.

Mexican vehicles have been taking up a huge share of US' car imports. But China is importing more auto parts from Mexico. The latter's imports of auto parts from China are also on the rise. An insider told me that improvement in China's manufacturing industry tallies with Mexican auto industry's demand for high-quality accessories, especially electronic components.

The potential breakthrough of Chinese car companies' share in the Mexico market will largely depend on technological upgrading - generating consumer demand through new technologies. Chinese enterprises are a latecomer in the automotive industry, but a pioneer in the field of electric vehicles. They have the technology to create new demand and boost exports.

During a seminar on Belt and Road initiative at the National Autonomous University of Mexico, Mexican scholars were most concerned with what they can gain from China's initiative. BYD's entry into Mexico is the appropriate answer.

BYD's electric autos can upgrade Mexico's car production capability. It focuses on technological advancement while meeting environmental protection guidelines. Such cooperation in electric vehicle manufacturing is beneficial to both China and Mexico.

BYD's technologies not only meet stringent US standards, but even surpass its American counterparts. It will be easier for the company to gain more opportunities in Mexico and other developing countries.

The author is a senior editor at People's Daily and a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China. dinggang@globaltimes.com.cn Follow him on Twitter @dinggangchina.